CITY OF SANGER. and. California Department of Housing and Community Development CALHOME. Down Payment Assistance Program. Program Guidelines

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1 CITY OF SANGER and California Department of Housing and Community Development CALHOME Down Payment Assistance Program Program Guidelines

2 HOMEBUYER PROGRAM GUIDELINES Table of Contents 1.0. GENERAL 1.1. PROGRAM OUTREACH AND MARKETING 1.2. APPLICATION PROCESS AND SELECTION 1.3. THE HOME PURCHASE PROCESS 1.4. HOMEBUYER COSTS 1.5. HOMEBUYER EDUCATION 1.6. CONFLICT OF INTEREST REQUIREMENTS 1.7. NON DISCRIMINATION REQUIREMENTS 2.0. APPLICANT QUALIFICATION 2.1. CURRENT INCOME LIMITS 2.2. INCOME QUALIFICATION CRITERIA 2.3. DEFINITION OF ELIGIBLE HOMEBUYER 3.0. HOUSING UNIT ELIGIBILITY 3.1. LOCATION AND CHARTERISTICS 3.2. CONDTION 3.3. ANTI DISPLACEMENT POLICY AND RELOCATION ASSISTANCE 3.4. PROPER NOTIFICATION AND DISCLOSURES 4.0. PURCHASE PRICE LIMITS 5.0. THE PRIMARY LOAN 5.1. QUALIFYING RATIO 5.2. INTEREST RATE 5.3. LOAN TERM 5.4. IMPOUND ACCOUNT 6.0. THE PROGRAM LOAN 6.1. MAXIMUM AMOUNT OF PROGRAM ASSISTANCE 6.2. NON RECURRING CLOSING COSTS 6.3. AFFORDABILITY PARAMETERS FOR HOMEBUYERS 6.4. RATES AND TERMS FOR PROGRAM LOANS 6.5.LOAN TO VALUE RATIO 7.0. PROGRAM LOAN REPAYMENT 7.1. PAYMENTS ARE VOLUNTARY 7.2. RECEIVING LOAN REPAYMENTS 7.3. DUE UPON SALE OR TRANSFER 7.4. LOAN SERVICING POLICIES AND PROCEDURES 7.5. LOAN MONITORING PROCEDURES 8.0. PROGRAM LOAN PROCESSING AND APPROVAL 8.1. COMPLETION OF UNDERWRITING AND APPROVAL OF PROGRAM LOAN 8.2. PRIMARY AND PROGRAM LOAN DOCUMENT SIGNING 8.3. ESCROW PROCEDURES 9.0. SUBORDINATE FINANCING EXCEPTIONS AND SPECIAL CIRCUMSTANCES DEFINITION OF EXCEPTION PROCEDURES FOR EXCEPTIONAL CIRCUMSTANCES DISPUTE RESOLUTION AND APPEALS PROCEDURE 2

3 TABLE OF CONTENTS (CONTINUED) ATTACHMENTS ATTACHMENT A: 24 cfr part 5 annual income inclusions and exclusions ATTACHMENT B: Annual income net family asset inclusions and exclusions ATTACHMENT C: Income limits ATTACHMENT D: Maximum purchase price ATTACHMENT E: Home subsidy limits per unit section 221(d)(3) ATTACHMENT F: Loan servicing policies and procedures ATTACHMENT G: Sample disclosures to seller with voluntary, arm's length, purchase offer ATTACHMENT H: Instructions to home buyer ATTACHMENT I: Lead based paint notice of presumption and hazard reduction form ATTACHMENT J: RACE AND ETHNIC DATA REPORT FORM AND INSTRUCTIONS 3

4 CITY OF SANGER HOMEBUYER PROGRAM GUIDELINES 1.0. GENERAL The CITY OF SANGER, hereinafter referred to as the RECIPEINT has entered into a contractual relationship with the California Department of Housing and Community Development ( HCD ) to administer one or more HCD funded homebuyer programs. The homebuyer program described herein (the Program ) is designed to provide assistance to eligible homebuyers in purchasing homes, also referred to herein as housing units, located within the Program s eligible area, as described in Section 2.1. The Program provides this assistance in the form of deferred payment silent second priority loans as Gap financing toward the purchase price and closing costs of housing units that will be owner occupied. The Program is administered by the City of SANGER PROGRAM OUTREACH AND MARKETING All outreach efforts will be done in accordance with state and federal fair lending regulations to assure nondiscriminatory treatment, outreach and access to the Program. No person shall, on the grounds of age, ancestry, color, creed, physical or mental disability or handicap, marital or familial status, medical condition, national origin, race, religion, gender or sexual orientation be excluded, denied benefits or subjected to discrimination under the Program. The City will ensure that all persons, including those qualified individuals with handicaps have access to the Program. A. The Fair Housing Lender logo will be placed on all outreach materials. Flyers or other outreach materials will be printed in English and Spanish, the primary languages of most area residents. The Program may affiliate with an outside organization to conduct homebuyer classes to help educate homebuyers about the home buying process and future responsibilities. B. The Program Operator will work closely with local real estate agents and primary lenders to explain the Program requirements for eligible housing units and homebuyers and to review Program processes. Local real estate agents and primary lenders will also be encouraged to have their customers participate in the Program. C. Section 504 of the Rehabilitation Act of 1973 prohibits the exclusion of an otherwise qualified individual, solely by reason of disability, from participation under any program receiving Federal funds. The City of Sanger will take appropriate steps to ensure effective communication with disabled housing applicants, residents and members of the public APPLICATION PROCESS AND SELECTION A. Each applicant must first complete a pre qualification with their primary mortgage lender. The lender s pre qualification letter shall be provided to the City at the time of application for the CALHOME loan. The application shall be signed and dated by the applicant and shall demonstrate the applicant s income, employment, and credit history to establish preliminary eligibility for Program participation. Completed 4

5 applications are date stamped and underwritten on a first come first served basis. Applications are only accepted and date stamped if all information is completed. B. The homebuyer is given 90 days to execute a purchase agreement with a seller and secure commitment from a qualified lender for their primary mortgage loan. If during the 90 day time frame, the potential homebuyer is unable to purchase a home, an extension may be given. However, if it appears the potential homebuyer no longer qualifies or, for any other reason cannot participate in the Program, the reservation of funds will expire THE HOME PURCHASE PROCESS The following is a simplified example of how a primary lender would analyze a home buyer s finances to determine how much the homebuyer could afford to borrow from the primary lender towards homeownership. DEBT SERVICE FOR A FAMILY OF FOUR EARNING $3,686 PER MONTH HOUSING PAYMENTS TOTAL OVERALL PAYMENTS Principal & Interest Payment $ 768 $ 968 Housing Insurance Other Debt Service Taxes 120 $ 1,475 Total Debt Service Total Housing Expense $ 968 (Overall debt service per month is 40% of $3,686) (PITI is 30% of $2,500) OTHER HOUSEHOLD DEBT SERVICE Car Payment $ 350 Credit Card Payment 157 Total Other Debt $ 507 A $768 per month loan payment equates to borrowing $128,000 at 6% for a 30 year term. SUBSIDY CALCULATION FOR A FAMILY OF FOUR EARNING $2,500 PER MONTH Purchase Price of Property $ 160,000 Less Primary loan amount 128,000 Less down payment of 3% 4,800 Equals GAP $ 27,200 Plus estimated allowable settlement charges 3,000 Equals Total Subsidy $ 30,200 5

6 A. The housing unit selection process will be conducted by the homebuyers. Prior to making an offer to purchase an eligible housing unit (see Section 3.0), homebuyer shall provide seller with a disclosure containing the following provisions: (Depending on the HCD Program) 1) Homebuyer has no power of eminent domain and, therefore, will not acquire the property if negotiations fail to result in an amicable agreement; and 2) Homebuyer s offer is an estimate of the fair market value of the housing unit, to be finally determined by a state licensed appraiser; 3) The housing unit will be subject to inspection. 4) All housing units built prior to January 1, 1978 will require a lead paint disclosure to be signed by both the homebuyer and Seller (Attachment I); 5) Since the purchase would be voluntary, the seller would not be eligible for relocation payments or other relocation assistance; 6) The seller understands that the housing unit must be either: currently owner occupied, newly constructed, a renter purchasing the unit, or vacant for three months prior to submission of the purchase offer. 7) If the seller is not provided with a statement of the above six provisions prior to the purchase offer, the seller may withdraw from the agreement after this information is provided. B. Applicant submits executed standard form purchase and sale agreement and primary lender prequalification letter to Program Operator. The purchase and sale agreement will be contingent on the household and housing unit meeting Program eligibility requirements and receiving Program loan approval. Program Operator verifies applicant eligibility, housing unit and loan eligibility and amount of assistance to be provided consistent with these guidelines. C. Program Operator, where Program Operator is not the City, submits recommendation to the City for approval or denial, including the reasons for the recommendation. City determines Applicant s approval or denial, and instructs Program Operator to notify Applicant. Program Operator provides written notification to Applicant of approval or denial with reason and, if denied, a copy of the Program s appeal procedures. D. When Primary Lender requirements are met, Program funds are deposited into escrow, with required closing instructions and loan documents. E. At the time of escrow closing, the City shall be named as an additional loss payee on fire, flood, if required, and extended coverage insurance for the length of the loan and in an amount sufficient to cover all encumbrances or full replacement cost of the housing unit. 6

7 1.4. HOMEBUYER COSTS A. Eligible households must document that they have the funds necessary for down payment and closing costs as required by the Primary Lender and the City. The Program s down payment requirement (below) is in place even if the Primary Lender has a lower down payment requirement. B. Homebuyer funds shall be used in the following order: 1) Down payment Minimum Requirement: Three percent of purchase price or $3,000, whichever is greater. 2) To the extent possible after satisfying 1), above, appraisal fee; cost of credit report; the loan origination fee; discount points customary homebuyer closing costs; homebuyer s customary portion of the escrow fees; title insurance; and, the establishment of impound accounts for property taxes and insurance. 3) After 1) and 2), above, are satisfied, any balance of homebuyer funds may be applied either to the purchase price or to reduce the interest rate of the primary loan as necessary. C. If the items in B.1or 2), above cannot be satisfied with homebuyer funds, the City may provide Program loan assistance to cover the remaining balance. D. City may also provide sufficient assistance, as Program loan principal, to reduce the monthly payments for PITI to an affordable level of household income. The subsidy will write down the cost of the primary lender s loan so that the payments of PITI are within approximately 30 to 35% of the gross household income. The Program Operator will determine the level of subsidy and affordability during underwriting of the Program s loan to make sure that it conforms to the requirements of the HCD funding Program HOMEBUYER EDUCATION Buying a home can be one of the most confusing and complicated transactions anyone can make. Providing the future homebuyer with homebuyer education and training can bring success to the Program and homebuyer. All Program participants are required to attend a City approved homebuyer education class. The homebuyer education class may cover such topics as: preparing for homeownership; finding financing; maintaining good credit; escrow and loan closing procedures; homeowner responsibilities; home maintenance; and loan servicing. Homebuyer education courses for buyers under this program shall be provided by the Community Housing Council of Fresno. 7

8 1.6. CONFLICT OF INTEREST REQUIREMENTS When the City s program contains Federal funds, the following shall be addressed: in accordance with title 24, Section of the Code of Federal Regulations, no member of the governing body and no official, employee or agent of the local government, nor any other person who exercises policy or decision making responsibilities (including members of the loan committee and officers, employees, and agents of the loan committee, the administrative agent, contractors and similar agencies) in connection with the planning and implementation of the Program shall directly or indirectly be eligible for this Program. Exceptions to this policy can be made only after public disclosure and formal approval by the governing body of the locality NON DISCRIMINATION REQUIREMENTS The Program will be implemented in ways consistent with the City s commitment to non discrimination. No person shall be excluded from participation in, denied the benefit of, or be subject to discrimination under any program or activity funded in whole or in part with State funds on the basis of his or her religion or religious affiliation, age, race, color, creed, gender, sexual orientation, marital status, familial status (children), physical or mental disability, national origin, or ancestry, or other arbitrary cause. 2.0 APPLICANT QUALIFICATIONS 2.1. CURRENT INCOME LIMITS FOR THE AREA, BY HOUSEHOLD SIZE All applicants must certify that they meet the household income eligibility requirements for the applicable HCD program(s) and have their household income documented. The income limits in place at the time of loan approval will apply when determining applicant income eligibility. All applicants must have incomes at or below 80% of the County s area median income (AMI), adjusted for household size, as published by HCD each year. Attachment C shows the limits for Fresno County, in which the Program will operate. City will update the income limits annually as HCD provides new information. The link to the official, HCD maintained, income limits is: Household: means one or more persons who will occupy a housing unit. Annual Income: The combined gross income of all adult household members INCOME QUALIFICATION CRITERIA Projected annual gross income of the applicant household will be used to determine whether they are above or below the published HCD income limits. Income qualification criteria, as shown in the most recent HCD program specific guidance, will be followed to independently determine and certify the household s annual gross income. The Program Operator should compare this annual gross income to the 8

9 income the Primary Lender used when qualifying the household. The Primary Lender is usually underwriting to FHA or conventional guidelines and may not calculate the household income or assets in the same way as required by the Program. Income will be verified by reviewing and documenting tax returns, copies of wage receipts, subsidy checks, bank statements and third party verification of employment forms sent to employers. All documentation shall be dated within six months prior to loan closing and kept in the applicant file and held in strict confidence. A. HOUSEHOLD INCOME DEFINITION: Household income is the annual gross income of all adult household members that is projected to be received during the coming 12 month period, and will be used to determine program eligibility. For those types of income counted, gross amounts (before any deductions have been taken) are used; and the types of income that are not considered would be income of minors or live in aides. Certain other household members living apart from the household also require special consideration. The household s projected ability to pay must be used, rather than past earnings, when calculating income. Attachment A: 24 CFR Part 5 Annual Income Inclusions and Exclusions NOTE: Non occupant co signers will not be required to submit income and asset documentation. Co signers income will not be included in the household income determination. Co signers are acceptable as long as their names do not appear on the Grant Deed or Deed of Trust. B. ASSETS: There is no asset limitation for participation in the Program. Income from assets is, however, recognized as part of annual income under the Part 5 definition. An asset is a cash or non cash item that can be converted to cash. The value of necessary items such as furniture and automobiles are not included. (Note: it is the income earned e.g. interest on a saving s account not the asset value, which is counted in annual income.) An asset s cash value is the market value less reasonable expenses required to convert the asset to cash, including: Penalties or fees for converting financial holdings and costs for selling real property. The cash value (rather than the market value) of an item is counted as an asset. Attachment B: Part 5 Annual Income Net Family Asset Inclusions and Exclusions 2.3. DEFINITION OF AN ELIGIBLE HOMEBUYER An eligible homebuyer means an individual or individuals or an individual and his or her spouse who meets the income eligibility requirements and is/are not currently on title to real property. Persons may be on title of a manufactured home unit, who are planning to sell the unit as part of buying a home located on real property. Documentation of homebuyer status will be required for all homebuyers. 9

10 CalHome funded Programs are required to use the following definition of an eligible homebuyer, which is a first time homebuyer from 8201 (k) Title 25 California Code of Regulations: First time homebuyer means an individual or individuals or an individual and his or her spouse who have not owned a home during the three year period before the purchase of a home with subsidy assistance, except that the following individual or individuals may not be excluded from consideration as a first time homebuyer under this definition: 1. a displaced homemaker who, while a homemaker, owned a home with his or her spouse or resided in a home owned by the spouse. A displaced homemaker is an adult who has not, within the preceding two years, worked on a full time basis as a member of the labor force for a consecutive twelve month period and who has been unemployed or underemployed, experienced difficulty in obtaining or upgrading employment and worked primarily without remuneration to care for his or her home and family; 2. a single parent who, while married, owned a home with his or her spouse or resided in a home owned by the spouse. A single parent is an individual who is unmarried or legally separated from a spouse and has one or more minor children for whom the individual has custody or joint custody or is pregnant; and 3. an individual or individuals who owns or owned, as a principal residence during the three year period before the purchase of a home with assistance, a dwelling unit whose structure is: a. not permanently affixed to a permanent foundation in accordance with local or state regulations; or b. not in compliance with state, local, or model building codes and cannot be brought into compliance with such codes for less than the cost of constructing a permanent structure HOUSING UNIT ELIGIBILITY 3.1. LOCATION AND CHARACTERISTICS A. Housing units to be purchased must be located within the eligible area. The eligible area is described as follows: Within the Sanger City Limits. B. Housing unit types eligible for the homebuyer Program are new or previously owned: single family homes, condominiums, or manufactured homes on a single family lot and placed on a permanent foundation system. C. All housing units must be in compliance with State and local codes and ordinances. D. Housing units located within a 100 year flood zone will be required to provide proof of flood insurance in order to close escrow. 10

11 3.2. CONDITIONS A. Construction Inspection and Determining Need for Repairs. Once the participating homebuyer has executed a purchase agreement for a housing unit and prior to a commitment of Program funds, the following steps must be taken for the housing unit to be eligible for purchase under the Program: 1) The Program Operator s construction inspector will walk through the housing unit, determine if it is structurally sound, and identify any code related and health and safety deficiencies that need to be corrected. A list of code related repair items will be given to the homebuyers and their Realtor to be negotiated with the seller. 2) When the City s Program utilizes Federal funds and if the housing unit was constructed prior to 1978 then the lead based paint requirements of Section 3.2.E will apply. 3) A clear pest inspection report will be required for each housing unit. Smoke detectors will be installed if there are none in place. The Program Operator will encourage each homebuyer to secure a homeowner s warranty policy as part of the purchase of a resale housing unit. 4) Upon completion of all work required by the construction inspector, a final inspection will be conducted prior to close of escrow. The inspector will sign off on all required construction work assuring that each housing unit receiving Program assistance is in compliance with local codes and health and safety requirements at the time of purchase and prior to occupancy. B. After a home is purchased using this Program such home shall not be eligible for the City s housing rehabilitation program, if any, for the relevant period of affordability. C. If the assisted homebuyer is acquiring a home with Program funds: 1) The housing unit must be free from any defects that pose a danger to the health and safety of occupants before occupancy. D. Housing unit size shall be sufficient to meet the needs of the homebuyer household, without overcrowding. Generally, this means not more than two persons per bedroom or living room. E. Lead Based Paint Hazards: The following requirements must be met: 1) Notification: a) Prior to homebuyer s obligation to purchase a pre 1978 home, the Buyer will be given a copy of and asked to read the EPA pamphlet Protect Your family From Lead in Your Home. (EPA 747 K , September 2001) A signed receipt of the pamphlet will be kept 11

12 in the City s homebuyer file; b) A notice to residents is required following a risk assessment/inspection using form DHS 8552, which is provided by the DHS certified Risk Assessor/Inspector; c) a notice to residents is required following lead based paint mitigation work using Visual Assessment and Lead based Paint Notice of Presumption and Hazard Reduction form, LBP 1 (Attachment I). 2) Disclosure: Prior to the homebuyer s obligation to purchase a pre 1978 housing unit, the HUD disclosure Seller s Lead based Paint Disclosure notice must be provided by the seller to the homebuyer. 3) Inspections: The Inspector shall conduct a Visual Assessment of all the dwelling unit s painted surfaces in order to identify deteriorated paint. All deteriorated paint will be stabilized in accordance with CFR (a) and (b); and a Clearance shall be made in accordance with CFR ) Mitigation: If stabilization is required, the contractor performing the mitigation work must use appropriately trained workers. Prior to the contractor starting mitigation work the Program Operator shall obtain copies of the contractor s and workers appropriate proof of LBP training, as applicable to the job in order to assure that only qualified contractors and workers are allowed to perform the mitigation. F. The Program Operator will: 1) confirm that the housing unit is within the eligible area, and 2) will review each proposed housing unit to ensure that it meets all eligibility criteria before funding. 3.3 ANTI DISPLACEMENT POLICY AND RELOCATION ASSISTANCE Eligible homes will be those that are currently owner occupied or have been vacant for three months prior to the acceptance of a contract to purchase PROPER NOTIFICATION AND DISCLOSURES A. Upon selection of a housing unit, a qualified seller and homebuyer must be given the necessary disclosures for the Program. The homebuyer must have read and signed all Program disclosure forms. Any and all property disclosures must be reviewed and signed by the homebuyer and seller. B. All owners who wish to sell their housing units must receive an acquisition notice prior to submission of the homebuyer s original offer. This notice will be included in the contract and must be signed by all owners on title. The disclosure must contain the items listed in 1.3.B. (Required for federally funded Programs PURCHASE PRICE LIMITS The purchase price limits for this Program are those currently published as approved by the California Department of Housing and Community Development. 12

13 See Attachment D: MAXIMUM PURCHASE PRICE. City will update these limits annually as HCD provides new information THE PRIMARY LOAN Prior to obtaining a loan from the City, a homebuyer must provide evidence of financing for the maximum amount the Primary Lender is willing to loan (the primary loan ). The loan must be a fixed rate fully amortized 30 year loan QUALIFYING RATIOS Primary loans underwritten by FHA, USDA Rural Development, Fannie Mae, Freddie Mac, or CalHFA will be acceptable to establish creditworthiness, repayment ability, and dependability of income. If none of the above primary loans are used, the City will use the front and back end ratios shown in the paragraphs below. The ratios are calculated on the borrower s fixed monthly expenses to the household s gross monthly income. The front end ratio shall be between 28% and 35% and is the percentage of a borrower s gross monthly income (before deductions) that would cover the cost of PITI (loan principal and interest payment + property taxes + property insurance). The back end ratio shall be between 36% and 49% and is the percentage of a borrower s gross monthly income that would cover the cost of PITI plus any other monthly debt payments like car or personal loans and credit card debt INTEREST RATE The rate of interest shall be fixed (not an adjustable rate mortgage, ARM) at the current market rate. If Risk Rates are applied (an interest rate that reflects the primary lender s loan risk) each loan shall be evaluated by the City on a case by case basis LOAN TERM The primary loan shall be fixed rate, fully amortized and have a term all due and payable in no fewer than 30 years. There shall not be a balloon payment due before the maturity date of the Program loan IMPOUND ACCOUNT All households will be required to have impound accounts for the payment of taxes and insurance to ensure they remain current. 13

14 6.0. THE PROGRAM LOAN 6.1. MAXIMUM AMOUNT OF PROGRAM ASSISTANCE The amount of Program assistance to a homebuyer toward purchase of a home shall not exceed the maximum Fresno County HUD published Subsidy Limits. Maximum subsidy limits are regularly revised and actual subsidy amounts may be lower than the HUD published limits. The current maximum subsidy amount is $60,000. Attachment E: SUBSIDY LIMITS PER UNIT SECTION 221(d) (3) 6.2. NON RECURRING CLOSING COSTS Non recurring costs such as credit report, escrow, closing and recording fees, and title report and title insurance, title updates and/or related costs may be included in the Program loan AFFORDABILITY PARAMETERS FOR BUYERS The actual amount of a buyer s Program subsidy shall be computed according to the housing ratio parameters specified in Section 5.1. Each borrower shall receive only the subsidy needed to allow them to become homeowners ( the Gap ) while keeping their housing costs affordable. The primary lender will use the front end ratio of housing expense to income to determining the amount of the primary loan and, ultimately, the Program subsidy amount required, bridging the gap between the purchase price (less down payment) and the amount of the primary loan RATE AND TERMS FOR PROGRAM LOANS All Program assistance to individual households shall be made in the form of deferred payment (interest and principal) loan. Below in A and B are the two types of interests that are allowed on the Program loan. The City may elect to do both types of interest but not on the same loan. The homebuyer may either be offered type A or B (explained below) on their Program loan. A. The primary loan s term shall be 30 years, the same as the Program loan. The interest rate for CalHome Down Payment Assistance Loans can range from 0 to 3 percent. All Program loan payments shall be deferred. B. Option for Shared Net Appreciation Shared net appreciation may be offered as an alternative to the standard loan terms in Section 6.4.A., above, only with the following terms (CalHome requirement): 1) Gross appreciation is calculated by subtracting the original sales price from the current sales price or the current appraised value if the loan accelerating event is other than sale of the property; 14

15 2) Net appreciation is calculated by subtracting the seller s applicable closing costs, seller s cash contribution in the original purchase transaction, and the documented value of capital improvements from the gross appreciation amount; 3) The City may only claim repayment of the principal and a portion of the net appreciation. That maximum portion of the net appreciation, which may be claimed by the City, is equal to the percentage of the value of the home financed by the Program loan. That is, if the loan equals 20% of the initial value of the home, a maximum of 20% of the net appreciation may be charged by the City; 4) In any loan where the Program loan is the only subsidy, the borrower cannot be restricted from selling the home at its fair market value at any time; 5) Loans shall have a term at least as long as the Primary loan LOAN TO VALUE RATIO The loan to value ratio for a CalHome Program loan, when combined with all other indebtedness to be secured by the property, shall not exceed 100 percent of the sales price plus a maximum of up to 5 percent of the sales price to cover actual closing costs PROGRAM LOAN REPAYMENT 7.1. PAYMENTS ARE VOLUNTARY Borrowers may begin making voluntary payments at any time RECEIVING LOAN PAYMENTS A. Program loan payments will be made to: City of SANGER th Street SANGER, CA B. The City will be the receiver of loan payments or recapture funds and will maintain a financial record keeping system to record payments and file statements on payment status. Payments shall be deposited and accounted for in the City s Program Income Account, as required by all three HCD programs. The Program lender will accept loan payments from borrowers prepaying deferred loans, and from borrowers making payments in full upon sale or transfer of the property. All loan payments are payable to the City. The City may at its discretion, enter into an agreement with a third party to collect and distribute payments and/or complete all loan servicing aspects of the Program DUE UPON SALE OR TRANSFER 15

16 A. Loans are due upon sale or transfer of title (unless assumable as in B below) or when borrower no longer occupies the home as his/her principal residence or upon the loan maturity date. The loan will be in default if the borrower fails to maintain required fire or flood insurance or fails to pay property taxes. B. Program loans may or may not be assumable according to the HCD program and the loan documents LOAN SERVICING POLICIES AND PROCEDURES See Attachment F for local loan servicing policies and procedures. While the attached policy outlines a system that can accommodate a crisis that restricts borrower repayment ability, it should in no way be misunderstood: The loan must be repaid. All legal means to ensure the repayment of a delinquent loan as outlined in the Loan Servicing Policies and Procedures will be pursued LOAN MONITORING PROCEDURES City will monitor Borrowers and their housing units annually to ensure adherence to Program requirements including, but not limited to, the following: A. Owner occupancy B. Property tax payment C. Hazard insurance coverage D. Good standing on Primary loans E. General upkeep of housing units Annually, the City will certify occupancy upon receipt and review of the documents provided by the family PROGRAM LOAN PROCESSING AND APPROVAL Applicant must complete the City application packet, which includes: A. Loan Processing All homebuyers or their representatives will be provided with an eligibility packet with all the necessary forms, disclosures, information, and application. They must submit a complete application packet with all the City s Program loan documents executed as well as all the information from the Primary Lender. The Primary Lender should submit: 1) accepted property sales contract with proper seller notification; 2) mortgage application with good faith estimates and first mortgage disclosures; 3) full mortgage credit report and rent verification; 4) current third party income verifications and verifications of assets; 5) homeownership education certificate, if applicable. Staff will work with local lenders to ensure qualified participants receive only the benefit from the City s Program needed to purchase the housing unit and that leveraged funds will be used when possible. For example, in some cases the Primary Lender will not require mortgage insurance with the City s second 16

17 in place which will save on the homebuyer s monthly payment. B. Credit worthiness Qualifying ratios are only a rough guideline in determining a potential borrower s credit worthiness. Many factors such as excellent or poor credit history, amount of down payment, and size of loan will influence the decision to approve or disapprove a particular loan. The borrower s credit history will be reviewed by the City and documentation of such maintained in the loan file. The City may elect to obtain a credit report or rely on a current copy obtained by the primary lender. C. Documents from Primary Lender After initial review of the qualified homebuyer's application packet, the Program Operator will request any additional documents needed. Documents may be faxed or ed, but originals shall be received through the mail before Program funds are committed to escrow. Based on receipt and review of the final documents, the Program Operator will do an income certification (using most recent HCD program s guidance on income calculation and determination), and homebuyer certification (review of credit report and income taxes). Documentation of affordability will then be verified and subsidy requirement determined. D. Disclosure of Program and Loan Information to Homebuyers The Program s application and disclosure forms will contain a summary of the loan qualifications of the borrower with and without Program assistance. Housing ratios with and without Program assistance are also outlined in these guidelines. Information on the Program s application will be documented with third party verifications in the file. For example, the sales contact will provide the final purchase price and outline how much of the closing costs are to be paid by the seller, etc. The appraisal, termite and title report will provide information to substantiate the information in the sales contract and guide the construction inspection. The Program loan application will provide current debt and housing information and will be documented by the credit report and income/asset verifications. The Primary Lender s approval letter and estimated closing cost statement should reflect all the information in the loan package and show any contingencies of loan funding. Reviewing the Primary Lender s loan underwriting documentation will provide basic information about the qualification of the applicant and substantiate the affordability provided by the Program loan. By reviewing and crosschecking all the Primary Lender information, the final Program loan amount approved will fall within the affordability parameters of the Program COMPLETION OF UNDERWRITING AND APPROVAL OF PROGRAM LOAN Once the loan approval package is completed, the Program Operator will submit it to the City for approval. City will review the request and may approve it with or without conditions. Upon approval, a final closing date for escrow is set and Program funds 17

18 are accessed for the homebuyer PRIMARY AND PROGRAM LOAN DOCUMENT SIGNING The homebuyer(s) signs promissory notes, deeds of trust, and statutory lending notices (right of rescission, truth in lending, etcetera); the deeds of trust are recorded with the County Clerk/Recorder at the same time, and the request(s) for copy of notice of default are also recorded with the County Clerk/Recorder ESCROW PROCEDURES The escrow/title company shall review the escrow instruction provided by the Program lender and shall issue a California Land Title Association (CLTA) and the American Land Title Association (ALTA) after closing. The CLTA policy is issued to the homebuyer and protects them against failure of title based on public records and against such unrecorded risks as forgery of a deed. The ALTA is issued to each lender providing additional coverage for the physical aspects of the property as well as the homebuyer s title failure. These aspects include anything which can be determined only by physical inspection, such as correct survey lines; encroachments; mechanics liens; mining claims and water rights. The Program lender instructs the escrow/title company in the escrow instructions as to what may show on the policy; the amount of insurance on the policy (all liens should be covered) and the loss payee (each lender should be listed as a loss payee and receive an original ALTA) SUBORDINATE FINANCING Subordinate loans may be used to cover mortgage subsidy costs that exceed the Program maximum loan amount. All subordinate liens must have the payments deferred and the term must be for at least as long as the term of the Program loan EXCEPTIONS AND SPECIAL CIRCUMSTANCES DEFINITION OF EXCEPTION Any case to which a standard policy or procedure, as stated in the guidelines, does not apply or an applicant treated differently from others of the same class would be an exception PROCEDURE FOR EXCEPTIONAL CIRCUMSTANCES A. The City or its agent may initiate consideration of an exception and prepare a report. This report shall contain a narrative, including the City's recommended course of action and any written or verbal information supplied by the applicant. B. The City shall make a determination of the exception based on the recommendation of the Program Operator. The request can be presented to the City s loan committee and/or governing body for a decision. 18

19 C. Exceptions must be presented to HCD for prior approval DISPUTE RESOLUTION AND APPEALS PROCEDURE Any applicant denied assistance from the Program has the right to appeal. The appeal must be made in writing. City has 30 days to review the appeal, seek recommendations from the loan committee, or if none, the City s governing body, and respond in writing to the applicant. 19

20 ATTACHMENT A 24 CFR Part 5 ANNUAL INCOME INCLUSIONS AND EXCLUSIONS Part 5 Inclusions This table presents the Part 5 income inclusions as stated in the Code of Federal Regulations. General Category Statement from 24 CFR paragraph (b) (Last Modified: January 2005) 1. Income from wages, salaries, tips, etc. 2. Business Income 3. Interest & Dividend Income 4. Retirement & Insurance Income 5. Unemployment & Disability Income 6. Welfare Assistance 7. Alimony, Child Support, & Gift Income 8. Armed Forces Income The full amount, before any payroll deductions, of wages and salaries, overtime pay, commissions, fees, tips and bonuses, and other compensation for personal services. Net income from the operation of a business or profession. Expenditures for business expansion or amortization of capital indebtedness cannot be used as deductions in determining net income. An allowance for depreciation of assets used in a business or profession may be deducted, based on straight line depreciation, as provided in Internal Revenue Service regulations. Any withdrawal of cash or assets from the operation of a business or profession will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested in the operation by the family. Interest, dividends, and other net income of any kind from real or personal property. Expenditures for amortization of capital indebtedness shall not be used as deductions in determining net income. An allowance for depreciation is permitted only as authorized in number 2 (above). Any withdrawal of cash or assets from an investment will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested by the family. Where the family has net family assets in excess of $5,000, annual income shall include the greater of the actual income derived from all net family assets or a percentage of the value of such assets based on the current passbook savings rate, as determined by HUD. The full amount of periodic payments received from Social Security, annuities, insurance policies, retirement funds, pensions, disability or death benefits, and other similar types of periodic receipts, including a lump sum amount or prospective monthly amounts for the delayed start of a periodic payment (except as provided in number 14 of Income Exclusions). Payments in lieu of earnings, such as unemployment and disability compensation, worker's compensation and severance pay (except as provided in number 3 of Income Exclusions). Welfare Assistance. Welfare assistance payments made under the Temporary Assistance for Needy Families (TANF) program are included in annual income: Qualify as assistance under the TANF program definition at 45 CFR ; and Are otherwise excluded from the calculation of annual income per 24 CFR 5.609(c). If the welfare assistance payment includes an amount specifically designated for shelter and utilities that is subject to adjustment by the welfare assistance agency in accordance with the actual cost of shelter and utilities, the amount of welfare assistance income to be included as income shall consist of: the amount of the allowance or grant exclusive of the amount specifically designated for shelter or utilities; plus: the maximum amount that the welfare assistance agency could in fact allow the family for shelter and utilities. If the family welfare assistance is reduced from the standard of need by applying a percentage, the amount calculated under 24 CFR shall be the amount resulting from one application of the percentage. Periodic and determinable allowances, such as alimony and child support payments, and regular contributions or gifts received from organizations or from persons not residing in the dwelling. All regular pay, special day and allowances of a member of the Armed Forces (except as provided in number 8 of Income Exclusions). 20

21 Part 5 exclusions This table presents the Part 5 income exclusions as stated in the Code of Federal Regulations. General Category Statement from 24 CFR paragraph (c) (Last Modified: January 2005) 1. Income of Children Income from employment of children (including foster children) under the age of 18 years. 2. Foster Care Payments Payments received for the care of foster children or foster adults (usually persons with disabilities, unrelated to the tenant family, who are unable to live alone). 3. Inheritance and Insurance Income 4. Medical Expense Reimbursements 5. Income of Live in Aides Lump sum additions to family assets, such as inheritances, insurance payments (including payments under health and accident insurance and worker's compensation), capital gains and settlement for personal or property losses (except as provided in number 5 of Income Inclusions). Amounts received by the family that are specifically for, or in reimbursement of, the cost of medical expenses for any family member. Income of a live in aide (as defined in 24 CFR5.403). 6. Income from a Disabled Member 7. Student Financial Aid 8. "Hostile Fire" Pay Certain increase in income of a disabled member of qualified families residing in HOME assisted housing or receiving HOME tenant based rental assistance (24 CFR (a)). The full amount of student financial assistance paid directly to the student or to the educational institution. The special pay to a family member serving in the Armed Forces who is exposed to hostile fire. 9. Self Sufficiency Program Income a. Amounts received under training programs funded by HUD. b. Amounts received by a person with a disability that are disregarded for a limited time for purposes of Supplemental Security Income eligibility and benefits because they are set side for use under a Plan to Attain Self Sufficiency (PASS). c. Amounts received by a participant in other publicly assisted programs that are specifically for, or in reimbursement of, out ofpocket expenses incurred (special equipment, clothing, transportation, childcare, etc.) and that are made solely to allow participation in a specific program. d. Amounts received under a resident service stipend. A resident service stipend is a modest amount (not to exceed $200 per month) received by a resident for performing a service for the PHA or owner, on a part time basis, that enhances the quality of life in the development. Such services may include, but are not limited to, fire patrol, hall monitoring, lawn maintenance, resident initiatives coordination, and serving s a member of the PHA s governing board. No resident may receive more than one such stipend during the same period of time. e. Incremental earnings and benefits resulting to any family member from participation in qualifying state or local employment training programs (including training not affiliated with a local government) and training of a family member as resident management staff. Amounts excluded by this provision must be received under employment training programs with clearly defined goals and objectives, and are excluded only for the period during which the family member participates in the employment training program. 10. Gifts Temporary, nonrecurring, or sporadic income (including gifts). 11. Reparation Payments 12. Income from Full time Students 13. Adoption Assistance Payments 14. Social Security & SSI Income 15. Property Tax Refunds 16. Home Care Assistance 17. Other Federal Exclusions Reparation payments paid by a foreign government pursuant to claims under the laws of that government by persons who were persecuted during the Nazi era. Earnings in excess of $480 for each full time student 18 years old or older (excluding the head of household or spouse). Adoption assistance payments in excess of $480 per adopted child. Deferred periodic amounts from SSI and Social Security benefits that are received in a lump sum amount or in prospective monthly amounts. Amounts received by the family in the form of refunds or rebates under state or local law for property taxes paid on the dwelling unit. Amounts paid by a state agency to a family with a member who has a developmental disability and is living at home to offset the cost of services and equipment needed to keep this developmentally disabled family member at home. Amounts specifically excluded by any other Federal statute from consideration as income for purposes of determining eligibility or benefits under a category of assistance programs that includes assistance under any program to which the exclusions of 24 CFR 5.609(c) apply. A notice will be published in the Federal Register and distributed to housing owners identifying the benefits that qualify for this exclusion. Updates will be published and distributed when necessary. The following is a list of income sources that qualify for that exclusion: The value of the allotment provided to an eligible household under the Food Stamp Act of 1977; Payments to volunteers under the Domestic Volunteer Service Act of 1973 (employment through AmeriCorps, VISTA, Retired Senior Volunteer Program, Foster Grandparents Program, youthful offender incarceration alternatives, senior companions); Payments received under the Alaskan Native Claims Settlement Act; Income derived from the disposal of funds of the Grand River Band of Ottawa Indians; 21

22 Income derived from certain submarginal. land of the United States that is held in trust for certain Indian tribes; Payments or allowances made under the Department of Health and Human Services Low Income Home Energy Assistance Program. Payments received under the Main Indian Claims Settlement Act of 1980 (25 U.S.C. 1721); The first $2,000 of per capita shares received from judgements awarded by the Indian Claims Commission or the U.S. Claims Court and the interests of individual Indians in trust or restricted lands, including the first $2,000 per year of income received by individual Indians from funds derived from interests held in such trust or restricted lands; Amounts of scholarships funded under Title IV of the Higher Education Act of 1965, including awards under the Federal work study program or under the Bureau of Indian Affairs student assistance programs; Payments received from programs funded under Title V of the Older Americans Act of 1985 (Green Thumb, Senior Aides, Older American Community Service Employment Program); Payments received on or after January 1, 1989, from the Agent Orange Settlement Fund or any other fund established pursuant to the settlement in the In Re Agent Orange product liability litigation, M.D.L. No. 381 (E.D.N.Y.); Earned income tax credit refund payments received on or after January 1, 1991, including advanced earned income credit payments; The value of any child care provided or arranged (or any amount received as payment for such care or reimbursement for costs incurred for such care) under the Child Care and Development Block Grant Act of 1990; Payments received under programs funded in whole or in part under the Job Training Partnership Act (employment and training programs for Native Americans and migrant and seasonal farm workers, Job Corps, veterans employment programs, state job training programs and career intern programs, AmeriCorps). Payments by the Indians Claims Commission to the Confederated Tribes and Bands of Yakima Indian Nation or the Apache Tribe of Mescalero Reservation; Allowances, earnings, and payments to AmeriCorps participants under the National and Community Services Act of 1990; Any allowance paid under the provisions of 38 U.S.C to a child suffering from spina bifida who is the child of a Vietnam veteran; Any amount of crime victim compensation (under the Victims of Crime Act) received through crime victim assistance (or payment or reimbursement of the cost of such assistance) as determined under the Victims of Crime Act because of the commission of a crime against the applicant under the Victims of Crime Act; and Allowances, earnings, and payments to individuals participating in programs under the Workforce Investment Act of